MGM and Caesars Resilient Amid Las Vegas Strip Trends, Penn Takeover Unlikely, Analyst Says

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MGM and Caesars Resilient Amid Las Vegas Strip Trends, Penn Takeover Unlikely, Analyst Says

Las Vegas Strip trends continue to show resilience, benefiting MGM Resorts International (NYSE: MGM) and Caesars Entertainment (NASDAQ: CZR), according to Truist Securities analyst Barry Jonas. However, a near-term takeover of Penn Entertainment (NASDAQ: PENN) appears unlikely.

MGM and Caesars are the two largest operators on the Las Vegas Strip, a vital market for the U.S. gaming industry. Despite the Strip’s robust performance, the stocks of these two giants have diverged. Over the past month, MGM shares have risen by 12.16%, while Caesars has seen a modest increase of just 1.22%. Year-to-date, MGM is showing a small gain, whereas Caesars is down by 22%.

Jonas attributes some of the lag in Caesars stock to its state-level performances, which trail behind rival MGM.

“We believe this is largely a function of management’s playbook of efficiently managing promos/margins, as opposed to anything structural/permanent,” Jonas noted.

Despite some market participants giving up on Caesars stock, Jonas highlighted the potential for management to significantly reduce debt through asset sales and growth opportunities in new regional casinos in Nebraska and Virginia, as well as the refurbishment of the New Orleans integrated resort.

Boyd Unlikely to Pursue Penn Takeover in Near-Term

Jonas also discussed several regional casino operators, including Boyd Gaming (NYSE: BYD), which has significant exposure to the Las Vegas locals market.

Boyd has been rumored to be considering a takeover of rival Penn Entertainment, valued at over $9 billion. However, Boyd has not publicly confirmed this interest, and analysts widely believe Penn is not a willing seller at this time. Jonas agrees, pointing out Boyd’s solid balance sheet as a reason for the speculation, but he also noted the complexities of such a deal.

“We think the complexity of a transaction (likely involving multiple parties, requiring multiple divestitures as well as consent from landlord Gaming & Leisure Properties, while PENN is on the verge of releasing new ESPN Bet features … that should meaningfully improve their product, points to any deal as less likely,” Jonas explained.

ESPN Bet is seen as a potential sticking point for Boyd, as the operator would not want to overpay for Penn’s interactive business. This has led to speculation about a third party, potentially FanDuel parent Flutter Entertainment (NYSE: FLUT), getting involved. However, with ESPN Bet currently holding a small share in the U.S. sports betting market, its appeal to suitors might be limited.

Bally’s Might Accept Takeover Offer

Jonas also touched on the topic of casino consolidation, particularly regarding Bally’s (NYSE: BALY). With Bally’s securing the necessary financing for its Chicago integrated resort, the company might be more inclined to accept the takeover offer from Standard General, proposed earlier this year.

The hedge fund, controlled by Bally’s Chairman Soo Kim, offered $15 a share for the gaming company earlier this year, significantly lower than its $38 per share acquisition proposal made in March 2022. Standard General is Bally’s largest shareholder.

Jonas speculated that with the Chicago financing secured, Bally’s is less likely to reject the acquisition offer and could accept it while implementing “a number of value-enhancing measures.”

Conclusion

The gaming industry continues to see dynamic movements, with MGM Resorts International and Caesars Entertainment benefiting from resilient Las Vegas Strip trends. However, Penn Entertainment remains unlikely to be taken over in the near term due to complexities and strategic considerations. Meanwhile, Bally’s could be more open to accepting a takeover offer from Standard General, given recent financial developments.